Oversupply, China Slowdown Push Freight Prices Down
Freight shipping prices have plummeted to a historic low, fueled by a long-standing problem of too many ships and lower demand from China, as per a report in AFP.
However, the economists say that this is not a serious warning sign on the global economy.
Last week, the Baltic Dry Index, the global benchmark for freight rates for ships carrying raw materials, plunged to its all-time low. BDI, which tracks the cost of transporting dry commodities such as coal, iron ore and grain across 20 shipping routes, dropped ON Wednesday to 509 points, its lowest level since the creation of the index in 1985.
The global commodity trade is dominated by Chinese imports of key raw materials like coal and iron ore. In the wake of the slowdown in Chinese economy, the demand for these raw materials is falling and the cargo ships are running idle, leading to the fall, or freight rates.
Marc Pauchet, an analyst at shipbroking company Braemar ACM felt that the combination of increased speculative investments in the commodities market and an oversupply of ships have thrown the indicator off in recent years.
There have never been more commodities transported by sea, but the sector has been plagued with a surplus of ships ordered in good times, while China has put further downward pressure on rates.
Shipping companies, who were adding capacity at a fast pace to handle the growing demand were suddenly sitting with huge debts and idle ships.
